Question

What does the risk response phase of an audit primarily entail?

a. The performance of detailed tests of controls and substantive testing of transactions and accounts.

b. Evaluating the results of the detailed testing and forming an opinion on the truth and fairness of the client's financial report.

c. Gaining an understanding of the client.

d. The assessment of the audit firm's quality control procedures.

Answer 1

The risk response phase of an audit involves evaluating detailed testing results to form an opinion on a client's financial report, ensuring that they are free from material misstatements.

Step-by-step explanation:

The risk response phase of an audit primarily entails evaluating the results of detailed testing and forming an opinion on the truth and fairness of the client's financial report. This phase is critical in the audit process as it involves performing substantive testing for both transactions and account balances to gather sufficient evidence and forming conclusions based on this evidence.

The auditor must assess whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, concluding in the auditor's report.